Fiskars Oyj Abp

OMXH:FSKRS

Earnings Call Transcript 2021-Q1

[Kristian Tammela, Director of Investor Relations]

Good day, ladies and gentlemen. Welcome to Fiskars Group webcast for the first quarter of 2021. My name is Kristian Tammela. I'm the Director of Investor Relations at Fiskars. Today, we have a presentation, followed by Q&A, as usual. And we'll start off by the presentation by our CEO, Nathalie Ahlström. After that, our CFO, Sari Pohjonen, will give her presentation. And then there's room for questions and answers.So without further ado, let's get started.

[Nathalie Ahlström, President & CEO]

Thank you, Kristian. And good morning, everybody.It's my pleasure to be here and talk about our fantastic Q1 that follows the momentum we already created in 2020. Q1 really highlights the momentum, the growth momentum that we experience at Fiskars at the moment. When we look at the key achievements of the company in Q1, a few things stand out. One is that we are having a strong portfolio. We are winning with all the brands in all categories in our markets and in all BAs. We are truly winning with this strong portfolio. And when I talk also about winning with all the markets, Sari will later show you that we are truly growing in the dynamic markets in the North America, in Asia, China as well as in Europe, fantastic growth figures. So a strong portfolio delivering strong results in Q1.When we look at the outlook, you have seen over the past weeks and months that we've upgraded our outlook, thanks to the growth momentum that we are now seeing. And of course, we are very proud of doing that. And one thing just to keep in mind is that we are still in a bit of a touch-and-go situation because we continue to experience lockdowns in our markets. And for example, at the moment, still 15%, more than 15% of our own stores are in lockdown situations at the moment. The biggest ones are in Japan. And therefore, it has been a bit difficult to talk about the visibility. However, with this improved lockdown we see that we are having a great year ahead of us.Then when talking about the growth, sustaining growth for the long term, medium term, we've been speaking about our growth levers, consumer everyday, digital, and I'll come back to that shortly. Sustainability is one of the pillars for our growth agenda. And in Q1, we renewed our sustainability commitments, which I'll also come back to soon. So fantastic start of the year, Q1 2021, supported by the great work done in 2020.Going to the net sales development, we see big growth. Big growth, and even if we look then at the comparable growth, even higher growth. These are strong figures, supported by the trends in the market by the consumers and also supported by the work being done in the company. And if we compare to 2019, we see that our growth in Q1 was more than 12% higher than in 2019. So there's a lot of things now being executed and falling in place also to answer to this exceptional demand in the market. And with this performance, we also then will continue to invest in the future growth and our capabilities to deliver growth also in the future. And here on the right side, you also see what I was talking about earlier, that we are winning and growing in all the categories, in all the BAs. So it's a great achievement.Then coming to the profitability picture. This is our second best-ever profitability quarter in the history of Fiskars. The previous one was in our strong Q4 2020, which Q4 always being our biggest, most important quarter. And now we delivered the second best in this Q1. This record profitability was supported not only by the growth, also improvement of gross margins and also the ongoing programs that have been going on for some years and are now starting to show their impact in increased profitability. And we can also see that in terms of margin, we had the all-time high in Q1 2021.Going back to the outlook. As said, we have upgraded the outlook twice after the Q4 report was released in February. And this is to reflect the strong momentum that's in the market at the moment, the growth we are seeing. And also where we see that the channel mix, the e-com has been able to carry us through despite the store closures that we have seen throughout the whole quarter of Q1. And as said, continuing also now in Q2, where we still see store closures. As said, Japan is the most affected at the moment. And in total, more than 15% of our own stores are still closed.With the outlook, we're very proud of this achievement and this level. There's also some underlying visibility that makes it difficult, and it has to do with the Q2 gifting season and the tourism season. And then, of course, what does the world look like in Q4.Then talking about the strategy and how we are going forward. We have also, during Q1, continued to execute our strategy and really execution to ensure that we're even stronger as we go forward. And a few of the growth levers we see here on the execution of the strategy is consumer-centric mindset, consumer everyday in everything we do. And therefore, we wanted to combine communication with our marketing, with our consumer experience team so that we build on the strength of our brands, our portfolios, and we are united and therefore, closer also to the consumers and their needs. So communication has joined under marketing.We also strengthened our focus on digital. Of course, e-com is growing significantly for us at the moment, but we also need to on the digital side, not only e-com, but also have our platforms to be better at data analytics, agility in this area to be more with a finger on the pulse there. And we did some additions to the Fiskars leadership team in terms of digital. I'll soon come to that. And finally, our growth lever, sustainability, where we renewed our commitments. So executing the strategy to ensure future growth also in the years to come.And then looking at our management team, I spoke about that we merged the communications under Tina Andersson in our consumer experience function with marketing. And then we're also happy to introduce Peter Holmberg, who joined us as Chief Digital Officer. It really highlights the importance of digital in the strategy execution for Fiskars in the years to come. So closer to consumers with our communication and our brands and then digital. And then going to the third growth lever, which is, of course, our renewed sustainability commitment. And these are really about making the business even more relevant, making it future-proof.Sustainability has always been at the core of Fiskars' strategy. But here, we want to take a step further and make it even bolder, make it even more, that these are commitments that we are going to deliver. And they stand on 3 pillars, fight against throwaway culture. Fiskars is known for the everlasting design, even we all know the secondhand value of many of our products in the vintage market, the high-quality that our products are having. But we also want to really explicitly say what we stand for, fight against throwaway culture. And this also means that we want to have more circular economy in our production, in our design of our products. For example, here on the slide, we see an example of our scissors that are made of renewable material.We're also on a journey towards a carbon-neutral future. And the third leg is important in the sustainability commitment, our increased joy and well-being. It's about the people and the planet within Fiskars Group, but also in our stakeholders and all the consumers globally. With this renewed sustainability commitment, we are also going to track performance and talk about performance to show that we are taking step changes on our mission, lasting well-being for the people and the planet as we go forward.And then some examples of consumer everyday actions from Q1. We have been expanding our kitchenware service. That is where you can rent for monthly fee our products. Continue the Vintage where you can trade in products with a secondhand value at our Iittala stores present today in Finland and Sweden, so new business service models for the consumers. We also have a number of activities for the consumer everyday. For example, with the Iittala 140-year anniversary, there's limited edition 2021 essential ranges being sold to the consumers. For example, Iittala, 140 years is a fantastic exhibition at the Design Museum in Helsinki.Our Wedgwood brand had a new launch at Tmall as one of their platforms. It's really been well received. And you will see it in the figures Sari is going to show shortly about the growth in Asia. We have personalization within the Gerber range and many, many more activities, again, to appeal and answer to the needs of the consumer in their everyday life. We also have brand activism, you can say, with our Fiskars clothing range that has been now commercially launched. And finally, making the sustainability also part of the purchasing intent now, for example, like expanding in the cooking range with a sustainable range. So a lot of great activities that are here to drive the growth going forward.And with that, I hand over to Sari.

[Sari Pohjonen, CFO & Deputy CEO]

Thank you, Nathalie. And let's indeed have a bit of a closer look at our Q1.Now firstly, reminding on the 2 ongoing programs that we have. We have the transformation program, which we started at the end of 2018. That is expected to continue until the end of this year. And then we also have the restructuring program, which has been ongoing for roughly a year or a little bit over a year. Both of these programs will generate the full benefits after the programs have been completed. But of course, along the way, we already gradually start to see the benefits. And as a reminder, of course, in these type of programs, the costs do not appear or accumulate in a linear manner, but they are depending on the actions that have been taken and the potential actions in the future.Then first, looking into Vita. In Q1, there's been good growth in all of the business areas, as you saw already in the beginning. Maybe as a reminder here that in the case of Vita, in particular, one could say that the comparative numbers for 2020 are somewhat soft as in already in January 2020, we started to see the impact of COVID in some of our Asian markets, and then it became even stronger in February and March last year. So in that respect, of course, good to see that Vita has been growing. At the same time, if we compare to 2019, which was a more normal year in terms of not labeled by pandemic as we have it at the moment, then Vita is roughly on par in terms of sales. But I'm happy to say that our profitability for the Vita business has significantly improved from 2019 as well, as you can also see that from 2020.The key reasons behind, obviously, the volumes have been increasing, and that has been benefiting the result development, but the ongoing programs are already starting to give significant benefits to us. But I would like to point out maybe a couple of things. They have been already mentioned during this call even, but e-com is a big channel for us in Vita, which we have been investing on plenty of years already, and it is good to see that it is progressing also as we move along. The other topic is China, where we have been investing also, getting a better share there and being able to grow the business. That was one of the highlights for this quarter as well.Then if we move on to Terra, maybe still as a reminder of our seasonality, Q1 for Terra is always about loading in products for the gardening and watering categories then towards Q2 and Q3. Then we ultimately see how the season as a full will be shaping up. So this is a question of being able to increase the load-ins, which is now reflected in the net sales and also in the profitability. But very good to see that we have been able to grow in all of the categories and in terms of geographies, the Americas as well as Continental Europe have been the keys in driving the growth further.Then if we move on to Crea, a bit of a similar story here as in the previous quarter. So growing very steadily that we have seen in the previous quarters as well. We do see, however, now that there was a big demand for mask making-related products in 2020. That is now seeming to slow down. However, it is good to see that despite that slowdown, we have been able to improve and grow with all of the categories. We have also been able to successfully generate revenues and result from several campaigns that have been going on during Q1. And you already heard about, for instance, the scissors where we have been using recycled materials. That's one of the product launches that we have been able to bring to the market in the Q1.Then looking into the geographies, all of them were growing with double digit numbers, be it reported numbers or maybe with better comparability with the comparable numbers. But I'm particularly pleased to see the growth that we are generating in the APAC region and therein, for instance, in China. It's been one of our strategic priorities to grow in the Asia Pacific region. And at the same time, as we are growing elsewhere now, but in terms of percentages, we do see, I would say, slowly, but steadily, the importance of APAC region growing, and that is in line with our priorities.Then if we look at the full income statement or the full P&L for the company, maybe just a couple of points here. First of all, gross profit and the development of gross profit margin is internally one of the key KPIs for us. Now we are growing with it compared to the previous year, thanks to partly improvements in efficiencies, which is obviously something that we constantly are working on and then also a better mix compared to the previous years, same quarter. One other thing to point out from this P&L is the fact that even though our profit before taxes was significantly better than in the previous year, the profit for the period is not that much different because there we received, one could say, a negative ruling on an old tax case during Q1. And that has been now booked. So that is weighing on the profit for the period and also later on you will see on the EPS. However, no cash impact as we already paid the amounts back in 2016.And here, exactly, you can see for the EPS. So excluding the impact of the tax case, the EPS would have been much better. So it would have been EUR 0.45. Now we ended with EUR 0.10, taking into account those bookings that we had to make during this quarter.In terms of cash flow and working capital, the strong momentum that we have seen in the previous quarters, that continued. One could even say that our cash flow development in the first quarter was somewhat unusual compared to how the pattern usually has been. Typically, our cash flow from operations is negative during the first quarter. Now it was positive. And also, as you can see, we were able to mitigate well the working capital development.Then looking into the balance sheet, just a couple of words, maybe similar trend continuing as in the last year. So inventories are going down. At the same time, we are otherwise also managing the working capital, which you already saw on the previous slide.Then if we look at the net debt, that is following 2 things. Obviously, the result development and at the same time also the actions we have ongoing and have taken on the working capital side. And then the equity ratio and gearing are reflected here. Some deviation between quarters due to the seasonality, but all in all, following the good development.Then more as a reminder, our long-term financial targets, which are unchanged, but there you also see the full year 2020 results or ratios in terms of the targets as well as the same numbers for the last 12 months. So that was our Q1 in a nutshell. So we have had great momentum. We have been executing the strategy, and we are continuing to work on the ongoing programs.

[Kristian Tammela, Director of Investor Relations]

Great. So now we have time for some questions. And I already have a few ones here, so let's start off with those. So first of all, is it possible to give a sense on the current trading within Terra and Crea given the strong performance in Q2 2020? So kind of as the Q1 was strong. Maybe Sari can take that one.

[Sari Pohjonen, CFO & Deputy CEO]

Yes. I can take that one. Well, first of all, we are, of course, not commenting on any individual quarters. As I said already earlier, typically, the season goes so that we load in the products in the Q1 and then the Q2 and Q3 will be depending on many factors. And even though we sometimes don't want to mention it, but I would like to mention, for instance, that certainly the weather conditions, what they will be in the months to come, they will have an impact on us.

[Kristian Tammela, Director of Investor Relations]

Good. Second question, is it possible to get a sense of how much sales the currently closed stores generate before the pandemic? So how much are we losing out kind of at the moment with the lower values?

[Sari Pohjonen, CFO & Deputy CEO]

Yes. Maybe I'll continue on that one as well. Well, first of all, it's in a way, even impossible to say because the situation is changing even on a daily basis. So we did see throughout 2020 a lot of lockdowns in plenty of the countries. They are still continuing. In some countries, we have been able to open up recently, but as already mentioned during this call, there have lately been some new lockdowns in, especially in Japan and so forth. So that is something we are monitoring on a daily basis. But all in all, the situation can change even rapidly as we also saw during 2020.

[Kristian Tammela, Director of Investor Relations]

Then I think the third one will also go to Sari. We are seeing raw material and freight cost increase around the world. You have obviously been able to offset these effects very well. Do you expect this to change during the coming quarters?

[Sari Pohjonen, CFO & Deputy CEO]

It's very true that the situation, in many fronts, in terms of supply chain-related or operations-related topics are tough. That is part of the everyday business, try to mitigate them as much as possible, make sure that we have availability for the products and then also looking to do that going forward as well. Certainly, it's an area where our supply chain has been working with huge amount of energy in the beginning of the year to fight these challenges.

[Kristian Tammela, Director of Investor Relations]

Great. And then a question on the current group profitability. So our long-term target is 12% but are now at 14%. So is this level sustainable in the long run?

[Sari Pohjonen, CFO & Deputy CEO]

We are talking about, first of all, the target is on a reported one. And now we have 1 quarter where we have been above it, but let's see then how the full year will be going on.

[Kristian Tammela, Director of Investor Relations]

Great. I'll just give just a bit more, a few times to see if there are any other questions. Looks like there aren't any other questions. So I think that we are done for today. We'd like to thank all participants and have a great day.